County OKs Policy To Limit Increases in Employee Pay, Benefits

County OKs Policy To Limit Increases in Employee Pay, Benefits

$200 million shortfall possible in five years, analysts warn

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Montgomery County Council members vote on a new policy to limit compensation costs for county employees to the rate of revenue growth.

Montgomery County analysts are warning of a budget shortfall nearing $200 million if leaders don’t lower employee compensation spending.

The county is expecting no revenue growth in fiscal year 2021, but compensation spending is still expected to rise at least $6 million in the next budget, analyst Aron Trombka told County Council members Tuesday.

Over the next five years, compensation costs for county employees — including wages, Social Security, and retirement benefits — are expected to grow faster than revenue, forcing legislators to cut elsewhere or risk an unsustainable spending plan, Trombka added.

The council responded — in a 6-3 vote — by approving new guidelines for future budgets. The policy asks the county executive to limit recommended compensation increases to the rate of revenue growth, likely affecting everything from wages to bargaining agreements with local unions.

The new policy would have tough implications if the county’s recent revenue projections are borne out over the coming months. A report last week predicted a $99.8 million budget shortfall, driven by stagnating property and income tax revenues along with slower-than-expected wage growth.

The preliminary projections could improve by the time County Executive Marc Elrich submits his recommended budget on March 15. Otherwise, the county executive and the council could face tough decisions on wages, benefits, and collective bargaining with local unions, which negotiate their contracts with the county every year.

“It’s a general way of trying to make better decisions,” said Council Member Hans Riemer, who began working on the policy two years ago as council president. “And there’s no question that we can embrace a framework that says compensation should not grow faster than the rate of revenue. What’s the alternative? The alternative is, you’re budgeting for pay raises you can’t afford.”

Elrich, however, has disagreed with the policy, calling it “wrong-headed” and “inaccurate” in an interview on Wednesday.

“I don’t think it was necessary,” he said. “I don’t think it was logical, either.”

Elrich argued that it’s inaccurate to compare compensation and revenue growth because revenue could increase at a slower rate than compensation costs and still bring in enough to cover the added expenditures.

The blanket policy also doesn’t consider potential changes to the county’s payroll, he said. Compensation costs could even out or lower when older employees at the top of the pay scale retire and lower-paid workers take their place.

The county receives funding for some salaries through state and federal programs, Elrich added, including certain employees at the Department of Health and Human Services.

The council has requested mid-year funding for new positions, including additional employees in the inspector general’s office and several community nurses.

“If the council is going to add a bunch of people, it’s going to make it even harder for us to find a balance in the workforce,” Elrich said.

Riemer voted in favor of the new policy, as did Council Members Nancy Navarro, Sidney Katz, Craig Rice, Evan Glass, and Andrew Friedson.

Council Members Tom Hucker, Will Jawando and Gabe Albornoz voted against it after previously voting to postpone the motion until the council’s next meeting after the holidays.

Those who voted against the new policy mostly expressed a desire for more time to consider the proposal, rather than outright opposition. 

Hucker pointed out that the spending estimates only included data for county employees, without considering compensation costs for other county-funded agencies, including Montgomery County Public Schools.

“What would be useful for me is if we had all the agencies side by side, so we could really have a holistic picture of the budget,” he said Tuesday. “… None of us want a future budget gap. None of us want our expenditures to exceed our projected revenues. But to just focus on one portion of the budget isn’t, to me, very helpful.”

Riemer acknowledged that growth in revenue wasn’t directly comparable to growth in compensation costs. But for him and other council members who supported the policy, the bigger focus was on the county’s fiscal trends over the last several years.

Revenue growth has been slowing for years, Riemer said, and leaders are still recovering from an especially tough budget cycle last spring. The county was forced to cover a $41 million shortfall, dipping into its retirement health savings account to cover expenditures.

It was the same year that Elrich suggested a 9% raise for some of the county’s union workers, which triggered a conflict when council members unanimously rejected the proposal in April, Riemer added. Leaders ultimately approved a 6% raise, which noticeably increased compensation costs over previous years.

“This is a really important step in making sure that we’re being serious about the sustainability of our budget,” Friedson said of the new policy on Tuesday. “I appreciate the point that there are other agencies where a large portion of taxpayer dollars are spent. But I think we need to start with the ones we have the most control over.”

Council members won’t know if Elrich has suggested new raises until they receive his proposed budget in March.

On Wednesday, Elrich said his administration has been working on ways to streamline the county government, including reducing the number of paid contractors and providing new management training on government efficiency.

“We’re starting on work teams now, which is how this process is going to play out,” he said. “We’re really talking to managers about how they would organize things to make their departments more efficient.”

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